Sub-Saharan Africa is living on the edge. That’s the picture the latest IMF regional economic outlook painted of the region that seemed to have been on a strong recovery path from the pandemic-induced downturn.
“Unfortunately, this progress has been abruptly interrupted by turmoil in global markets, placing further pressures on policymakers in the region,” said Abebe Aemro Selassie, director of the IMF’s African department last week when the report was issued.
The toxic mix of weak growth and high inflation with a risk of social instability may be tempting politicians to turn to macroeconomic populism. Unfortunately, there are no easy solutions, and apparently easy options will inevitably run into unintended consequences that hurt the people they were meant to help.
According to the report Sub-Saharan Africa is projected to grow 3.6% in 2022, a big slowdown from nearly 5% in 2021, reflecting a darkening global outlook due to shocks caused by the Covid-19 pandemic, Russia’s invasion of Ukraine and climate disasters on all continents. The deterioration is also down to muted investment and overall worsening of the region’s balance of trade.
The IMF said nonresource-intensive countries that enjoy more diverse economic structures will continue to be among the region’s more dynamic and resilient economies, growing 4.6% in 2022 compared with 3.3% in oil exporters and 3.1% in other resource-intensive countries.
What’s more, inflation rose faster and more persistently than expected, putting out of reach essential and basic items such as food and energy that make up about half of the region’s consumption basket.
While the recent inflation pick-up is less striking relative to historical averages for Sub-Saharan Africa, the cost-of-living squeeze has pushed millions of people into acute food insecurity and could weigh on economic growth and undermine social and political stability, the IMF said. The turmoil comes on top of a prolonged pandemic, which has already tossed millions of middle-class Africans into poverty and hardships.
SA is one of the most striking examples of how the pandemic combined with tardy progress in dismantling structural impediments and geopolitical tensions have hammered the economy, jobs and the cost of living. A cursory glance at economic data such as poverty levels, economic growth and the gap between rich and poor will tell you that SA is on a knife’s edge.
Unemployment is at more than 40% — when including the millions who have given up looking for work — inequality is going in the wrong direction, and so too are poverty levels. It does not help if union leaders fail to see their role in an ailing economy, determined to stick to the script and pull in a destructive direction even when it is clear that it cannot be business as usual in a post state-capture SA.
Many countries in the region, including SA, have no room to throw money at the problems. Public debt has reached about 60% of GDP, leaving the region at borrowing levels last seen in the early 2000s when the IMF, World Bank, African Development Bank and private investors wrote off billions of dollars of African debt. What is particularly worrying is that 19 of the region’s 35 low-income countries are now in debt distress or at high risk of distress.
The region squandered an opportunity from 2005 to 2014 when it notched up annual growth rates of more than 5% to diversify its economies and live up to the promise of long periods of rapid growth, rising income and middle class in the euphoric Africa rising narrative.
It’s not all doom and gloom, though. As the world transitions to cleaner energy, the sub-Saharan African countries have an opportunity to set the stage for inclusive growth with investor-friendly policies that will harness the power of the private sector to pump money into the region's sizeable renewable-energy resources. But it’s not an opportunity to gamble with macroeconomic stability.
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